Maintaining a source of working capital is a delicate balancing act for many fleet owners. When cash flow is tight, many fleet owners are tempted to use asset based lending. After all, asset based lending comes off as an appealing solution for fleet owners in need of extra working capital. But is it really all it is cracked up to be?
How Asset Based Lending Is Sold
You’ve seen the slick sales pitches. Asset based lending creates a revolving line of credit around the value of things such as equipment and receivables. Fleets can draw on the line of credit as it is needed, and then replenish the amount, because the source of working capital is sustainable for the lifetime of the business. On top of all that, asset based lending is debt-free, and the amount of funding available grows along with the fleet. That seems like a very attractive financing solution, at first glance.
How Asset Based Lending Really Works
Under the glossy brochures is something that can place fleets in financial jeopardy very quickly. First, fleet owners pay for the initial evaluation of assets, before any funding is disbursed. Second, those items used to create the line of credit for asset based lending are actually collateral. If a payment is missed, the finance provider can take the equipment or other assets used to create the line of credit as payment. Third, the line of credit for asset based lending does not “grow with your business” unless there are more in-depth analyses made by the provider. The review of receivables, equipment, and other items can happen quarterly, monthly, and weekly – all paid by, you guessed it, the fleet owners. With the additional fees, along with some prohibitive interest rates, fleet owners might find themselves digging a financial hole by using asset based lending.
A Better Alternative
Freight factoring is designed to provide fleets with the working capital they need, within 24 hours. Instead of risking fixed assets for a line of credit, freight factoring is very straightforward. Open invoices and unsettled customer accounts are submitted for factoring services. Those invoices are then converted to working capital quickly and efficiently. There are no reviews and analyses that fleet owners need to pay for on a regular basis. No weird and fluctuating interest rates. No revolving lines of credit, subject to change in the provider’s favor.
Express Freight Finance provides factoring solutions, and we keep the process as simple and fast as possible to keep fleet owners flush with working capital. Your invoices come to us, and we provide turnaround within 24 hours. No hidden fees. No collateral necessary. Contact our offices today to learn more.